IT Companies Predict Topline Growth of 14–20% In Q3, Raising Concerns For Potential Risks

The topline growth for the December quarter was between 14-20 per cent year-over-year (YoY) for India's IT services giants. They were on watch against global uncertainties and turbulent industries, but they held out hope that cost and business factors would drive demand for technology, as PTI reported.

Large IT giants Tata Consultancy Services (TCS), Infosys, Wipro, and HCL Technologies announced their Q3 report cards this week, kicking off the tech earnings season amid analysts' bleak predictions about the downturn in advanced nations and their concern over geopolitical flare-ups.

The leaders of the businesses claimed that they were monitoring global economic indicators and indications closely. In comparison to the same quarter last year, the top-tier IT players' overall revenue growth band was estimated to have been between 14-20 per cent.

When viewed sequentially, the topline growth for the large IT group was between 3 per cent and 8 per cent compared to the September quarter prior.

The top IT deck's net profit for the December quarter increased from 3 per cent (Wipro) to 19 per cent (HCLTech) YoY, and from 4 per cent (TCS) to 17 per cent  (HCLTech) when calculated sequentially.

For the reporting quarter, TCS' total revenue increased 19.1 per cent to Rs 58,229 crore.    

Rajesh Gopinathan, the chief executive and managing director of India's largest IT services company, stated that the company is more optimistic about its operations in North America and the United Kingdom, which generate two-thirds of its revenues.

However, there are near-term risks, and Europe needs greater observation since geopolitical unrest prevents clients from spending money on IT.

Although it is closely monitoring how events unfold over the coming two quarters, TCS management spoke of "slow" decision making in Europe and said it is "pretty constructive" when it comes to markets like the US.

There are prospects for "a combination of both cost and transformation transactions" because the dialogues with customers are a lot more balanced, where they are equally positive as well as cautious.

The deal momentum and pipeline are looking excellent, according to chief operating officer N Ganapathy Subramaniam, and the general position for technology spending appears to be intact even in this environment.

The consolidated revenue for the December quarter rose by 20.2 per cent YoY to Rs 38,318 crore, and Infosys surprised many by raising its full-year sales target to 16–16.5 per cent.

Between October and December 2022, Infosys' consolidated net profit increased by 13.4 per cent to Rs 6,586 crore from Rs 5,809 crore in the previous year. Net profit increased 9.4 per cent over the September quarter sequentially.

A robust deal pipeline allowed the company to increase its yearly sales projection, but in the same sentence, it also issued a warning about "constraints" in some industry sectors due to the slowing global economy.

Infosys specifically mentioned the mortgage, investment banking, telecom, and high-tech sectors, claiming that these industries were "particularly impacted, causing delays in decision-making and uncertainties in spending."

The firm was eager to point out that industries including manufacturing, energy, and utilities are still gaining ground.

Additionally, the IT bellwether located in Bengaluru stated that the worries are more acute in Europe than the US.

They observe that concerns regarding the status of the economy are more prevalent in European markets than in US markets, which are also present but to a lesser extent than in Europe, Salil Parekh, CEO of Infosys, remarked during the Q3 results conference. 

In its results report, the smaller competitor Wipro discussed a probable slowdown in the retail sector.

Additionally, "a little bit of a lag for conversion of bookings" and "certain amount of volatility from consumers in particular industries regarding discretionary spendings" were mentioned in the management's talking points.

In spite of global challenges, Wipro announced a better-than-anticipated 2.8 per cent increase in consolidated net profit for the December 2022 quarter to Rs 3,053 crore on Friday. The company also expressed confidence in "high" bookings for the fourth quarter.

But the company's Q4 guidance fell short of what analysts had predicted. For the quarter ending March 2023, Wipro predicted that its IT services revenue will increase between -0.6 per cent and one per cent sequentially in constant currency.

For the entire year, Wipro anticipates that revenue from the IT services sector will range between 11.5 and 12 per cent in constant currency terms. In the third quarter of FY23, Wipro reported revenues of Rs 23,229 crore, a 14.3 per cent increase over the comparable quarter in FY22.

HCLTech, with headquarters in Noida, reported a 19 per cent growth in third quarter consolidated net income of Rs 4,096 crore. From Rs 22,331 crore in the quarter ending in December 2021, its consolidated revenue increased by 19.56 per cent to Rs 26,700 crore in the quarter under report.

HCLTech reduced its forecast for current fiscal growth to a range of 13.5–14 per cent for overall revenue in constant currency terms and 18–18.5 per cent for margin.

Looking ahead, they think there will be an impact on some businesses, particularly technology industry clients, as they optimise, but with the proper propositions, they will end up as significant growth possibilities in the medium term, according to C Vijayakumar, CEO of HCL Tech.